Wall Street life: Fat cats and McDonald's get put under the grill

Wall Street life

By Simon English

(Filed: 13/03/2004)

Fat cats and McDonald's get put under the grill

McDonald's had some good news this week when the so-called Cheeseburger Bill banning lawsuits from fat people passed through the first hoop on the route to becoming law.

The bad news comes in the form of a film of epic portions called Super Size Me, which may do for burgers what Sweeney Todd did for meat pies.

Film-maker Morgan Spurlock consumes nothing but McDonald's for 30 days and records the horrendous effects on his mood, liver and cholesterol.

He packs on two stone in the process as doctors beg him to give up his reverse hunger strike and eat a vegetable. McDonald's is already flapping about a film it calls "a distortion of reality" even though no one has seen it yet.

The movie may well be an exercise in binge eating as the company claims, but it could leave McDonald's in the awkward position of having to state just how few Big Macs it is medically advisable to eat in a week.

McDonald's is trying, with success, to frame the debate about what we eat and how fat it makes us as one of "personal responsibility".

On those terms, Super Size Me has already got McDonald's admitting that it is irresponsible to eat its food all the time. This is an inadvertent confession that the products it sells are bad for you, and no business wants to admit that, even if it's demonstrably true.

So far there isn't a British distributor for the film, but I bet it will get picked up before long. With a certificate rating of F for Fat Audience, it looks like fun for all the family.

Bush gets a Buffetting

Warren Buffett is a perfect nightmare for officials of the Bush administration. He's incredibly successful, rich beyond belief, nearly always right about everything, and he can't stand them.

It is a bit of a problem trying to persuade the electorate that you're the best people to run the capitalist dream, if the most successful capitalist in history thinks you don't know what you are talking about and keeps saying so publicly.

Karl Rove, the supposed genius who is the President's chief political strategist, must dream of ways to persuade Buffett to shut up or die.

In his annual letter to investors last weekend Buffett again reported record profits and made the usual cutting remarks about the salaries chief executives without a sliver of his talent feel able to take home with a straight face.

Turning to taxes, the world's second-richest man explained just how much his Berkshire Hathaway outfit pays. Berkshire's contribution to the US Treasury for 2003 will be $3.3 billion - that's 2.5pc of the total income tax paid by all American companies.

Berkshire's market worth is 1pc of the value of corporate America, so either Buffett is way overpaying by choice (seriously unlikely) or the rest are getting away with it royally.

Buffett noted that Berkshire's contribution puts it in the top ten of American taxpayers. "Indeed," he writes, "if only 540 taxpayers paid the amount Berkshire will pay, no other individual or corporation would have to pay anything to Uncle Sam."

Buffett went on to note that corporate income taxes accounted for just 7.4pc of all government tax receipts last year, down from 32pc in 1952.

He suggested corporations aren't pulling their weight. It is the kind of accusation that gets you called a communist on Wall Street, even if that's the most patently absurd volley of abuse possible.

Sure enough, the voice of corporate America, the Wall Street Journal, was back with a snippy editorial a few days after Mr Buffett's opus.

It made the hoary old point that corporations don't really pay taxes - they just collect them. They then pass on the costs in higher prices to consumers or lower dividends to investors, on which basis it would make sense not to tax companies at all.

This idea would be greeted with horror in Britain, and outside of boardrooms it's not getting too many takers in the US either. Last month Royal Bank of Scotland reported profits of more than £7billion (that's a result) on which it paid tax of nearly £2 billion (that's another one).

Not even Fred Goodwin, Royal Bank's chief executive, thinks it would be fair if the company didn't pay any tax whatsoever.

The Journal's argument assumes that everyone is a consumer or an investor, when large parts of the population are neither. According to Peter Cohan, an author who knows about these things, it also only applies where companies have pricing power.

In most industries there is intense price competition, so corporations that tried to pass on tax increases would lose market share. The Journal also reasons, using misdirection typical of its editorial page, that Buffett is violating his fiduciary duty to his shareholders by urging higher corporate taxes.

He is doing no such thing, but merely asking that others share the burden Berkshire regards as its duty. As he put it: "We hope our taxes continue to rise in the future - it will mean we are prospering - but we also hope that the rest of corporate America antes up along with us."

Leaner and meaner

Appearing to be against tax cuts is a bit like coming out against oxygen in some quarters, these quarters specifically, so I'd better make it clear that I'm not against them.

In fact, I'd love one. Following the national debate here about whether Bush's tax cuts have worked is rather like sitting through one of those off-off-Broadway plays where the audience sits wondering precisely what world the actors are describing.

Those who ask when the tax cuts they keep hearing so much about are going to kick in are always shocked to be told that they have been and gone, and that it's now time for some belt-tightening.

A friend who is itching to take part in a one-man consumer spending spree asked me when that cash that the man on the news was talking about is going to arrive. I told him about the belt-tightening. Now he's looking for the neck of a government official to tighten it round.